I.

SHORT TITLE: CONFEDERATION FOR UNITY AND RECOGNITION AND

ADVANCEMENT OF GOVERNMENT EMPLOYEES et al. vs. COMMISIONER OF BUREAU OF
INTERNAL REVENUE et al.

II. FULL TITLE: CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCEMENT OF

GOVERNMENT EMPLOYEES (COURAGE); JUDICIARY EMPLOYEES ASSOCIATION OF THE
PHILIPPINES (JUDEA-PHILS); SANDIGANBAYAN EMPLOYEES ASSOCIATION (SEA); SANDIGAN NG
MGA EMPLEYADONG NAGKAKAISA SA ADHIKAIN NG DEMOKRATIKONG ORGANISASYON
(S.E.N.A.D.O.); ASSOCIATION OF COURT OF APPEALS EMPLOYEES (ACAE); DEPARTMENT OF
AGRARIAN REFORM EMPLOYEES ASSOCIATION (DAREA); SOCIAL WELFARE EMPLOYEES
ASSOCIATION OF THE PHILIPPINES-DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT
(SWEAP-DSWD); DEPARTMENT OF TRADE AND INDUSTRY EMPLOYEES UNION (DTI-EU);
KAPISANAN PARA SA KAGALINGAN NG MGA KAWANI NG METRO MANILA DEVELOPMENT
AUTHORITY (KKK-MMDA); WATER SYSTEM EMPLOYEES RESPONSE (WATER); CONSOLIDATED
UNION OF EMPLOYEES OF THE NATIONAL HOUSING AUTHORITIES (CUE-NHA); AND KAPISANAN
NG MGA MANGGAGAWA AT KAWANI NG QUEZON CITY (KASAMA KA-QC), PETITIONERS, V.
COMMISSIONER, BUREAU OF INTERNAL REVENUE AND THE SECRETARY, DEPARTMENT OF
FINANCE,RESPONDENTS.

NATIONAL FEDERATION OF EMPLOYEES ASSOCIATIONS OF THE DEPARTMENT OF

AGRICULTURE (NAFEDA), REPRESENTED BY ITS EXECUTIVE VICE PRESIDENT ROMAN M.
SANCHEZ, DEPARTMENT OF AGRICULTURE EMPLOYEES ASSOCIATION OFFICE OF THE
SECRETARY (DAEA-OSEC), REPRESENTED BY ITS ACTING PRESIDENT ROWENA GENETE,
NATIONAL AGRICULTURAL AND FISHERIES COUNCIL EMPLOYEES ASSOCIATION (NAFCEA),
REPRESENTED BY ITS PRESIDENT SOLIDAD B. BERNARDO, COMMISSION ON ELECTIONS
EMPLOYEES UNION (COMELEC EU), REPRESENTED BY ITS PRESIDENT MARK CHRISTOPHER D.
RAMIREZ, MINES AND GEOSCIENCES BUREAU EMPLOYEES ASSOCIATION CENTRAL OFFICE
(MGBEA CO), REPRESENTED BY ITS PRESIDENT MAYBELLYN A. ZEPEDA, LIVESTOCK
DEVELOPMENT COUNCIL EMPLOYEES ASSOCIATION (LDCEA), REPRESENTED BY ITS PRESIDENT
JOVITA M. GONZALES, ASSOCIATION OF CONCERNED EMPLOYEES OF PHILIPPINE FISHERIES
DEVELOPMENT AUTHORITY (ACE OF PFDA), REPRESENTED BY ITS PRESIDENT ROSARIO
DEBLOIS, INTERVENORS.
[G.R.No.213658,July3,2018] JUDGE ARMANDO A. YANGA, IN HIS PERSONAL CAPACITY AND IN HIS
CAPACITY AS PRESIDENT OF THE RTC JUDGES ASSOCIATION OF MANILA, AND MA. CRISTINA
CARMELA I. JAPZON, IN HER PERSONAL CAPACITY AND IN HER CAPACITY AS PRESIDENT OF THE
PHILIPPINE ASSOCIATION OF COURT EMPLOYEES-MANILA CHAPTER, PETITIONERS, V. HON.
COMMISSIONER KIM S. JACINTO-HENARES, IN HER CAPACITY AS COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE, RESPONDENT.

THE MEMBERS OF THE ASSOCIATION OF REGIONAL TRIAL COURT JUDGES IN ILOILO CITY,
INTERVENORS.

III. TOPIC: Income Tax – Gross income: Compensation Income and Fringe Benefits.

IV. STATEMENT OF FACTS:

Respondent CIR issued the assailed RMO No. 23-2014, in furtherance of Revenue Memorandum
Circular (RMC) No. 23-2012 on the "Reiteration of the Responsibilities of the Officials and
Employees of Government Offices for the Withholding of Applicable Taxes on Certain Income
Payments and the Imposition of Penalties for Non-Compliance Thereof," in order to clarify and
consolidate the responsibilities of the public sector to withhold taxes on its transactions as a
customer (on its purchases of goods and services) and as an employer.

Several petitioners filed a Petition for Prohibition and Mandamus, imputing grave abuse of
discretion on the part of respondent CIR in issuing RMO No. 23-2014. According to petitioners,
RMO No. 23-2014 classified as taxable compensation, the following allowances, bonuses,
compensation for services granted to government employees, which they alleged to be
considered by law as non-taxable fringe and de minimis benefits.

Petitioners further assert that the imposition of withholding tax on these allowances, bonuses
and benefits, which have been allotted by the Government to its employees free of tax for a long
time, violates the prohibition on non-diminution of benefits under Article 100 of the Labor
Code; and infringes upon the fiscal autonomy of the Legislature, Judiciary, Constitutional
Commissions and Office of the Ombudsman granted by the Constitution.

Petitioners, among others, also claim that RMO No. 23-2014 (1) constitutes a usurpation of
legislative power and diminishes the delegated power of local government units inasmuch as it
defines new offenses and prescribes penalty therefor, particularly upon local government
officials; and (2) violates the equal protection clause of the Constitution as it discriminates
against government officials and employees by imposing fringe benefit tax upon their
allowances and benefits, as opposed to the allowances and benefits of employees of the private
sector, the fringe benefit tax of which is borne and paid by their employers.

V. STATEMENT OF THE CASE:

G.R. Nos. 213446 and 213658 are petitions for Certiorari, Prohibition and/or Mandamus under
Rule 65 of the Rules of Court, with Application for Issuance of Temporary Restraining Order
and/or Writ of Preliminary Injunction, uniformly seeking to: (a) issue a Temporary Restraining
Order to enjoin the implementation of Revenue Memorandum Order (RMO) No. 23- 2014 dated
June 20, 2014 issued by the Commissioner of Internal Revenue (CIR); and (b) declare null, void
and unconstitutional paragraphs A, B, C, and D of Section III, and Sections IV, VI and VII of RMO
No. 23-2014. 

VI. ISSUE:
Whether or not RMO No. 23-2014 is ultra vires for subjecting to withholding taxes non-taxable
allowances, bonuses and benefits received by government employees;

VII. RULING:

No. Sections III and IV of RMO No. 23-2014 are valid.

Compensation income is the income of the individual taxpayer arising from services rendered
pursuant to an employer-employee relationship. Under the NIRC of 1997, as amended, every
form of compensation for services, whether paid in cash or in kind, is generally subject to
income tax and consequently to withholding tax. The name designated to the compensation
income received by an employee is immaterial. Thus, salaries, wages, emoluments and
honoraria, allowances, commissions, fees, (including director's fees, if the director is, at the same
time, an employee of the employer/corporation), bonuses, fringe benefits (except those subject
to the fringe benefits tax under Section 33 of the Tax Code), pensions, retirement pay, and other
income of a similar nature, constitute compensation income that are taxable and subject to
withholding.

The withholding tax system was devised for three primary reasons, namely: (1) to provide the
taxpayer a convenient manner to meet his probable income tax liability; (2) to ensure the
collection of income tax which can otherwise be lost or substantially reduced through failure to
file the corresponding returns; and (3) to improve the government's cash flow. This results in
administrative savings, prompt and efficient collection of taxes, prevention of delinquencies and
reduction of governmental effort to collect taxes through more complicated means and
remedies.

Section 79(A) of the NIRC of 1997, as amended, states:

SEC. 79. Income Tax Collected at Source. –

(A) Requirement of Withholding - Except in the case of a minimum wage earner as defined in
Section 22(HH) of this Code, every employer making payment of wages shall deduct and
withhold upon such wages a tax determined in accordance with the rules and regulations
to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

In relation to the foregoing, Section 2.78 of RR No. 2-98, as amended, issued by the Secretary of
Finance to implement the withholding tax system under the NIRC of 1997, as amended,
provides:

SECTION 2.78. Withholding Tax on Compensation. — The withholding of tax on compensation

income is a method of collecting the income tax at source upon receipt of the income.  It applies
to all employed individuals whether citizens or aliens, deriving income from
compensation for services rendered in the Philippines. The employer is constituted as the
withholding agent.
Section 2.78.3 of RR No. 2-98 further states that the term employee "covers all employees,
including officers and employees, whether elected or appointed, of the Government of the
Philippines, or any political subdivision thereof or any agency or instrumentality "; while an
employer, as Section 2.78.4 of the same regulation provides, "embraces not only an individual
and an organization engaged in trade or business, but also includes an organization exempt from
income tax, such as charitable and religious organizations, clubs, social organizations and
societies, as well as the Government of the Philippines, including its agencies, instrumentalities, and
political subdivisions."

The law is therefore clear that withholding tax on compensation applies to the Government of
the Philippines, including its agencies, instrumentalities, and political subdivisions. The
Government, as an employer, is constituted as the withholding agent, mandated to deduct,
withhold and remit the corresponding tax on compensation income paid to all its employees.

As an employer, government offices including government-owned or controlled corporations

(such as but not limited to the Bangko Sentral ng Pilipinas, Metropolitan Waterworks and
Sewerage System, Philippine Deposit Insurance Corporation, Government Service Insurance
System, Social Security System), as well as provincial, city and municipal governments are
constituted as withholding agents for purposes of the creditable tax required to be withheld
from compensation paid for services of its employees.
Under Section 32(A) of the NIRC of 1997, as amended, compensation for services, in whatever
form paid and no matter how called, form part of gross income. Compensation income includes,
among others, salaries, fees, wages, emoluments and honoraria, allowances, commissions (e.g.
transportation, representation, entertainment and the like); fees including director's fees, if the
director is, at the same time, an employee of the employer/corporation; taxable bonuses and
fringe benefits except those which are subject to the fringe benefits tax under Section 33 of the
NIRC; taxable pensions and retirement pay; and other income of a similar nature.

Clearly, Sections III and IV of the assailed RMO do not charge any new or additional tax. On the
contrary, they merely mirror the relevant provisions of the NIRC of 1997, as amended, and its
implementing rules on the withholding tax on compensation income as discussed above. The
assailed Sections simply reinforce the rule that every form of compensation for personal
services received by all employees arising from employer-employee relationship is deemed
subject to income tax and, consequently, to withholding tax, unless specifically exempted or
excluded by the Tax Code; and the duty of the Government, as an employer, to withhold and
remit the correct amount of withholding taxes due thereon.

While Section III enumerates certain allowances which may be subject to withholding tax, it does
not exclude the possibility that these allowances may fall under the exemptions identified under
Section IV – thus, the phrase, "subject to the exemptions enumerated herein." In other words,
Sections III and IV articulate in a general and broad language the provisions of the NIRC of 1997,
as amended, on the forms of compensation income deemed subject to withholding tax and the
allowances, bonuses and benefits exempted therefrom. Thus, Sections III and IV cannot be said
to have been issued by the CIR with grave abuse of discretion as these are fully in accordance
with the provisions of the NIRC of 1997, as amended, and its implementing rules.

Determination of existence of fringe benefits is a question of fact

Petitioners, nonetheless, insist that the allowances, bonuses and benefits enumerated in Section
III of the assailed RMO are, in fact, fringe and de minimis benefits exempt from withholding tax
on compensation. The Court cannot, however, rule on this issue as it is essentially a question of
fact that cannot be determined in this petition questioning the constitutionality of the RMO.

VIII. DISPOSITIVE PORTION

WHEREFORE, premises considered, the Petitions and Petitions-in Interventions are PARTIALLY

GRANTED. Section VI of Revenue Memorandum Order No. 23-2014 is DECLARED null and void
insofar as it names the Governor, City Mayor, Municipal Mayor, Barangay Captain, and Heads of
Office in government agencies, government-owned or -controlled corporations, and other
government offices, as persons required to withhold and remit withholding taxes.

Sections III, IV and VII of RMO No. 23-2014 are DECLARED valid inasmuch as they merely
mirror the provisions of the National Internal Revenue Code of 1997, as amended. However, the
Court cannot rule on petitioners' claims of exemption from withholding tax on compensation
income because these involve issues that are essentially factual or evidentiary in nature, which
must be raised in the appropriate administrative and/or judicial proceeding.
The Court's Decision upholding the validity of Sections III and IV of the assailed RMO is to be
applied only prospectively.

Finally, the Petition for Mandamus in G.R. No. 213446 is hereby DENIED on the ground of
mootness.

IX. PREPARED BY: Mataga, Landrel M.